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Elon Musk wants to use the law to force Twitter to give him a group of key employees to question. This could be the billionaire's last and best chance to get out of his $44 billion takeover deal.
Twitter's stock has gone up more than 20% in the last month, closing at $44.26 on Friday. This shows that Wall Street is getting more and more sure that Musk will be forced to buy Twitter at what looks like a sky-high price after tech stocks crashed in the summer. The rising share price has also made it less likely that Twitter's price can be lowered.
Musk sold $6.9 billion worth of Tesla shares earlier this month, which is the latest sign that he is getting ready to pay up. He said he did this "in the (hopefully unlikely) event that Twitter forces this deal to close and some equity partners don't come through."
But in a legal move that Musk's team hopes will turn the tide, his lawyers accused Twitter on Tuesday of trying to hide which employees are in charge of reviewing spam accounts on the site. They also asked Delaware Judge Katharine McCormick earlier in the case to force Twitter to name those employees so they can be questioned.
The source said that McCormick is expected to respond to the request this week.
Robert Miller, who is in charge of corporate finance and law at the University of Iowa, told The Post that if she sides with Musk, she would give the billionaire a much-needed win.
Miller said that the plan may still be a long shot, but that interviewing the employees is Musk's best chance of proving that Twitter knew it had a problem with bots and tried to hide it. Miller said that if Musk wins, a court would see Twitter's actions as fraud and let him out of the deal without having to pay anything.
“Elon must show that not only is the fake account number false, but also they knew it was false,” Miller said. “If he wins on the fraud charge… the merger contract would no longer apply.”
Miller said that McCormick is likely to grant Musk's request because not doing so could make it more likely that her decision against Musk would be overturned on appeal if she doesn't.
But J.B. Heaton, a researcher on investments and a former lawyer for a business, sees things differently. He told The Post that Musk's plan to talk to Twitter employees is a "fishing expedition" and that the billionaire's single-minded focus on bots has turned his case into a "slow motion trainwreck."
"They're making a bad plan even worse," Heaton said. "He got in, but then he had second thoughts, so he said, 'I'm going to try to make bots my issue.'" No one will buy it."
Heaton said that Musk's lawyers should stop making the "colossal mistake" of arguing that he should be able to get out of the contract because he is worried about robots. Instead, they should accept that the Delaware Court of Chancery is almost certainly going to rule against him and focus on limiting the damage.
They would do this by focusing on a part of the contract that says any cancellation fee can't be higher than $1 billion. This is a small amount compared to the $44 billion deal that Twitter wants the court to enforce. Heaton said that Musk's lawyers should argue that Musk should pay the fee and that forcing him to buy the company, which is called "specific performance," would "turn contract law on its head."
Even though that might be a better argument in the eyes of Judge McCormick and Delaware's highest court, Musk's lawyers would have to tell the billionaire who signs their checks that his main argument is a bad one.
“Litigation is a hotbed of excessive optimism,” Heaton said, adding that there would be a “very good argument” to give up on trying to beat Twitter outright and instead focus on controlling the damage.
Miller, however, sees that argument as a nonstarter. He said that Musk should focus on arguing the bots issue because if Delaware rules against Musk, it is almost sure to order him to buy the company through specific performance.
That possibility makes Musk’s recent stock sales “very rational,” Miller said.
“Elon selling stock tells me he plans to comply with the court order if he loses,” he said.
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